Senate probes “unfixable” AT&T/T-Mobile deal

When a Senate antitrust committee hearing is called “The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?”, you know that the back-and-forth will be contentious, and today's hearing certainly was.

"When I was a kid," said Senator Al Franken (D-MN), "every Sunday at exactly 9am in Minnesota, my grandmother would call from New York and talk to my father for precisely three minutes." It was the only time the two had to talk, but fortunately "the breakup of Ma Bell forever changed the cost of long-distance service." Now, Franken sees AT&T's $39 billion bid for T-Mobile as an attempt to put Ma Bell back together again.

"I fear that if approved, the merger would take us one more step toward the monopoly market that we had under Ma Bell," said Franken, who warned that it was "going to raise prices for American families."

Taking the oath

The Midwest senatorial contingent was hard on AT&T CEO Randall Stephenson. Sen. Herb Kohl (D-WI), who chaired the hearing, openly mocked AT&T's contention that T-Mobile was not a strong competitor. "My view is that this statement is incorrect," said Kohl to Stephenson. "Now, look, you two are competitors!"

Stephenson admitted that they did compete in wireless service, but maintained that T-Mobile was losing customers and was not a focus of AT&T strategy. T-Mobile played along, continuing to stress just how weak its network really is. Asked whether the decision to buy T-Mobile had anything to do with removing market competition, Stephenson responded, "I do deny that, Senator."

Beyond the expected critiques, the hearing was unusually substantive. The heads of T-Mobile and AT&T were in attendance, as was the CEO of Sprint and the head of a rural cellular trade organization. There was plenty of verbal sparring—Sprint's Dan Hesse said that AT&T would gain "significant unchecked leverage to increase prices" and that the deal was "unfixable"—but there was plenty of discussion of real problem areas.

The rural carriers and Sprint had three areas of concern. First was handsets; after the merger, AT&T and Verizon would be in position to lock up desirable handsets with exclusive deals, something of particular concern to rural carriers. While one's network might offer superb coverage, if users can't get cool smartphones, they might be forced into the arms of the "Bell sisters," as one participant called AT&T and Verizon.

Sprint's Dan Hesse

The second issue was about data roaming; regional players need it to offer national coverage, but AT&T in particular has sometimes refused to do such deals. A new FCC data roaming rule could do away with some of these problems, except for the fact that AT&T has exclusive 700MHz spectrum holdings. Other operators don't have that spectrum, and their devices might not be able to roam onto 4G networks even with a deal in place.

Finally, there's the long-standing "special access" issue. When Sprint puts in a new cell tower, 30 percent of the cost goes to buying landline backhaul to the tower. This usually comes from AT&T or Verizon, and Sprint's Hesse said he could immediately lower his cell phone rates if those companies had to offer those lines on more reasonable terms.

We can't wait to lower prices

But AT&T and T-Mobile argued the deal was all upside for consumers. In their view, the merger will provide:

On the issue of price, many senators were skeptical. "Four competitors are better than three," said Kohl, and everyone agreed that competition was preferable to regulation. But AT&T's Stephenson said that "competition" was too simple a mantra; "spectrum availability" was key, too. A market with fewer players, but with each player having more access to spectrum, might actually push prices down.

Republican senators appeared more sympathetic to AT&T's argument, but that sympathy only went so far. As Sen. Mike Lee (R-UT) put it, "I favor market approaches" to mobile broadband, but "I share some of the concerns of Senator Kohl."